Post-Katrina-like hard market an “exciting time” for ILS managers: AM Best at ILS NYC 2023

The current post-Katrina-like hard market is an “exciting time” for insurance-linked securities (ILS) managers who see profits in the future amid high demand for capacity, suggests Emmanuel Modu, managing director of ILS at AM Best.

Modu’s comments stem from an AM Best TV interview which took place at our annual ILS conference in New York earlier this month.

In the interview, Modu was first asked how Hurricane Ian affected the ILS market, to which he suggested it simply led to a continuation of what has been happening over the last few years.

“There were quite a few hurricane events in the past six years, with an average of about $100 billion in losses each year. This has caused price increases since 2017,” Modu said.

He continued, “Hurricane Ian was really a watershed moment where prices spiked dramatically at the January 1 renewals. This brought that market to a hard position, almost similar to the post-Katrina era.

“This has been quite an exciting time for the ILS managers who see profits in the future and also see that the act of now originating risks that can be covered by the cost of that risk.”

When asked whether he expects ILS capacity to grow in 2023, Modu said that capacity is a hard number to pin down, adding, “The only number we really know for sure is the cat bond capacity, which is about $34 billion.”

Modu went on, “Now there are other segments in the ILS market, you have sidecars, ILWs and collateralised reinsurance. The guess is that all together, the four segments total about 93-$95 billion, which represents a 3- 5% decline in AUM from last year.

“AUM has come down quite a bit because of losses, obviously, and because of investor hesitation in coming back into the market.

“It is clear that demand for ILS capital is high, but investors have to step back into the market.

“Of course, they’re fearful of all the losses that have happened over the past six years, and they’re still waiting for a good reason to come back in.”

Modu notes that investors are also asking questions about the effects of climate risk, which he states is a difficult question for ILS managers to answer, which in turn is an issue for capacity.

When asked what it will take for investors to come back into the market, Modu concluded, “I think that it’s going require a continued hard market, and also a cat year that’s less than the $100 billion average we’ve been seeing for the past couple of years, something in the order of perhaps $70 billion.

“That will probably give investors more confidence that they can jump back in, although I don’t believe that at this time, in this market, it is possible.”

View the full video interview from AM Best TV below:

Read more coverage of our ILS NYC 2023 conference:

– Potential for cat bond market to double, say ILS NYC 2023 speakers.

– Enablers helped private ILS become an important part of the market: ILS NYC 2023.

– Optimism on Florida, but capital may not be quick to jump back in: ILS NYC 2023.